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By Ali Qassim
Ireland’s Department of Finance has dismissed calls to introduce a minimum effective corporate tax rate aimed at preventing any profitable company from paying no tax by offsetting past losses and investments.
The center-right Fine Gael government has no plans to introduce an effective CTR, a Finance Department spokesman in the ministry told Bloomberg BNA in a June 9 email.
“All of the rules around the payment of taxes in Ireland are set out in law,” he said. “They are all transparent and all apply equally to all companies.”
He added: “The tax authorities in Ireland, the Revenue Commissioners, are independent in the application of those laws.”
A renewed call to introduce a minimum effective corporate tax rate by the opposition Labour Party came after Allied Irish Banks plc (AIB) said in its 2016 annual report that it could defer tax for at least 20 years.
AIB said in its report that assuming a sustainable market return on equity—circa 8.5 percent—over the long term for future profitability levels in Ireland and a GDP growth in Ireland of 2.5 percent, based on this scenario, it will take in excess of 20 years for the deferred tax asset of 3 billion euros ($3,381 billion) to be utilized.
“Furthermore, under this scenario, it is expected that 52 percent (2015: 60 percent) of the deferred tax asset will be utilised within 15 years with 83 percent (2015: 92 percent) utilised within 20 years. In a more stressed scenario with a return on equity of 8 percent and GDP growth of 1.5 percent, the utilisation period increases by a further 4 years,” the bank said in its report.
But a spokeswoman for former Labour leader Joan Burton, who now oversees finance for the center left party, told Bloomberg BNA in a June 9 email that “there is no minimum effective rate currently.”
“The headline rate is 12.5 percent”—one of the lowest in the European Union—“but losses and investments can be written off against the tax liability, reducing it to zero in some cases-as in the case of AIB,” she said.
“All of the Irish banks ran up very significant losses during the economic crisis,” she said, referring to the state’s 21 billion euros expenditure ($23.5 billion) in bailing out the bank after the 2008 financial crisis. “We would anticipate that all banks will be able to offset these losses against future profits over the years ahead.”
The proposals by Labour for an effective rate would extend to all corporates including “some other multinationals” which may have reduced their CIT to zero, she said without citing any examples.
“We have proposed a minimum effective rate of 6.25 percent, recognizing that there are some legitimate investments such as R&D or capital investment that can be written off against tax liabilities,” she said.
“To implement this in a sensible manner, we have proposed beginning with a minimum effective rate of one percent, and increasing this rate by one percent each year until the threshold of 6.25 percent is reached.”
The Labour Party, which was in a coalition with Fine Gael during the 2011-16 government, said it is “continuing to engage with the Department of Finance to seek a detailed costing for this proposal.”
Asked if it had any of its own figures, the spokesman said “we have not yet been able to produce our own cost on this proposal.”
But she underscored that while in government, the Labour Party introduced a similar minimum effective tax rate for high earners.
“This was done in 2010 and amounts to a minimum effective rate of 30 percent on all of those with incomes in excess of 400,000 euros ($447,928), she said.
The Irish tax office—The Revenue Commissioner—has estimated that the yield from this change amounted to 80 million euros ($89.4 billion) in 2010, having impacted upon 1,544 people.
AIB is expected to announce its final offer price on or around June 23 with conditional dealings in AIB ordinarily beginning on the Irish Stock Exchange and London Stock Exchange on the same day.
The bank, owned 99.9 percent by the minister for finance following recapitalization of AIB between 2009 and 2011, is set to have about 25 percent of its shares for sale. The bank is expected to return to private ownership.
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